XML 24 R13.htm IDEA: XBRL DOCUMENT
v3.20.2

Other Assets | 6 Months Ended
--- | ---
Jun. 30, 2020
Other Assets [Abstract] |
Other Assets | Other Assets The following table presents the components of the Company’s Other assets at June 30, 2020 and December 31, 2019:
(In Thousands) |  | June 30, 2020 |  | December 31, 2019
REO (1) |  | $ | 348,516 |  |  | $ | 411,659 |
Capital contributions made to loan origination partners |  | 109,585 |  |  | 147,992 |
Other interest-earning assets |  | 49,971 |  |  | 70,468 |
Interest receivable |  | 49,588 |  |  | 70,986 |
Other MBS and loan related receivables |  | 24,471 |  |  | 43,842 |
Other |  | 31,343 |  |  | 39,304 |
Total Other Assets |  | $ | 613,474 |  |  | $ | 784,251 |
(1) Includes $53.0 million and $27.3 million of REO that is held-for-investment at June 30, 2020 and December 31, 2019, respectively. (a) Real Estate Owned At June 30, 2020, the Company had 1,352 REO properties with an aggregate carrying value of $348.5 million. At December 31, 2019, the Company had 1,652 REO properties with an aggregate carrying value of $411.7 million. At June 30, 2020, $345.0 million of residential real estate property was held by the Company that was acquired either through a completed foreclosure proceeding or from completion of a deed-in-lieu of foreclosure or similar legal agreement. In addition, formal foreclosure proceedings were in process with respect to $142.9 million of residential whole loans held at carrying value and $486.4 million of residential whole loans held at fair value at June 30, 2020. The following table presents the activity in the Company’s REO for the three and six months ended June 30, 2020 and 2019:
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
(In Thousands) |  | 2020 |  | 2019 |  | 2020 |  | 2019
Balance at beginning of period |  | $ | 411,473 |  |  | $ | 290,587 |  |  | $ | 411,659 |  |  | $ | 249,413 |
Adjustments to record at lower of cost or fair value |  | (7,138 | ) |  | (1,315 | ) |  | (11,889 | ) |  | (5,388 | )
Transfer from residential whole loans (1) |  | 8,526 |  |  | 66,483 |  |  | 59,219 |  |  | 131,644 |
Purchases and capital improvements, net |  | 3,192 |  |  | 5,274 |  |  | 8,798 |  |  | 11,197 |
Disposals (2) |  | (67,537 | ) |  | (26,960 | ) |  | (119,271 | ) |  | (52,797 | )
Balance at end of period |  | $ | 348,516 |  |  | $ | 334,069 |  |  | $ | 348,516 |  |  | $ | 334,069 |
Number of properties |  | 1,352 |  |  | 1,362 |  |  | 1,352 |  |  | 1,362 |
(1) | Includes net gain recorded on transfer of approximately $0.2 million and $6.5 million for the three months ended June 30, 2020 and 2019, respectively; and approximately $3.2 million and $11.3 million for six months ended June 30, 2020 and 2019, respectively.
(2) During the three and six months ended June 30, 2020, the Company sold 296 and 545 REO properties for consideration of $70.5 million and $125.3 million, realizing net gains of approximately $3.0 million and $6.1 million, respectively. During the three and six months ended June 30, 2019, the Company sold 152 and 289 REO properties for consideration of $29.2 million and $57.0 million, realizing net gains of approximately $2.3 million and $3.7 million, respectively. These amounts are included in Other Income, net on the Company’s consolidated statements of operations. (b) Capital Contributions Made to Loan Origination Partners The Company has made investments in several loan originators as part of its strategy to be a reliable source of capital to select partners from whom it sources residential mortgage loans through both flow arrangements and bulk purchases. To date, such contributions of capital include the following investments (based on their carrying value prior to any impairments): $31.7 million of common equity, $68.0 million of preferred equity and $75.0 million of convertible notes. In addition, for certain partners, options or warrants may have also been acquired that provide the Company the ability to increase the level of its investment if certain conditions are met. At the end of each reporting period, or earlier if circumstances warrant, the Company evaluates whether the nature of its interests and other involvement with the investee entity requires the Company to apply equity method accounting or consolidate the results of the investee entity with the Company’s financial results. To date, the nature of the Company’s interests and/or involvement with investee companies has not resulted in consolidation. Further, to the extent that the nature of the Company’s interests has resulted in the need for the Company to apply equity method accounting, the impact of such accounting on the Company’s results for periods subsequent to that in which the Company was determined to have significant influence over the investee company was not material for any period. As the interests acquired to date by the Company generally do not have a readily determinable fair value, the Company accounts for its non-equity method interests (including any acquired options and warrants) in loan originators initially at cost. The carrying value of these investments is adjusted if it is determined that an impairment has occurred or if there has been a subsequent observable transaction in either the investee company’s equity securities or a similar security that provides evidence to support an adjustment to the carrying value. Following an evaluation of the anticipated impact of the COVID-19 pandemic on economic conditions for the short to medium term, the Company recorded impairment charges of $7.1 million and $65.2 million on investments in certain loan origination partners during the three and six months ended June 30, 2020, respectively, which was included in “Impairment and other losses on securities available-for-sale and other assets” on the consolidated statements of operations. At June 30, 2020, approximately $973.7 million of the Company’s Residential whole loans, at carrying value were serviced by entities in which the Company has an investment. (c) Derivative Instruments The Company’s derivative instruments have generally been comprised of Swaps, the majority of which were designated as cash flow hedges against the interest rate risk associated with certain borrowings. In addition, in connection with managing risks associated with purchases of longer duration Agency MBS, the Company has also entered into Swaps that are not designated as hedges for accounting purposes. In response to the turmoil in the financial markets resulting from the COVID-19 pandemic experienced during the three months ended March 31, 2020, the Company unwound all of its approximately $4.1 billion of Swap hedging transactions late in the first quarter in order to recover previously posted margin. Gains or losses associated with these Swap hedging transactions are required to be transferred from AOCI to earnings over the original term of the Swap, if the underlying hedged item or transactions are assessed as probable of occurring. After the closing of several new financing transactions late in the quarter ended June 30, 2020, the Company evaluated its anticipated future financing requirements. The Company concluded that it was no longer probable that certain previously used financing strategies, including those that primarily utilized repurchase agreements with funding costs that reset on a monthly basis, would be used by the Company on an ongoing basis, as this financing strategy had been essentially replaced by the new financing transactions. Consequently, the Company concluded that it was appropriate to transfer from AOCI to earnings approximately $49.9 million of losses on Swaps that had previously been designated as hedges for accounting purposes, because the hedged transactions were no longer considered probable to occur. This amount is included in Other income, net on the Company’s consolidated statements of operations. At June 30, 2020, losses of $7.2 million on Swaps previously designated as hedges for accounting purposes continue to be included in AOCI as the underlying hedged items or transactions continue to be assessed as probable of occurring. The following table presents the fair value of the Company’s derivative instruments at June 30, 2020 and December 31, 2019:
|  |  |  | June 30, 2020 |  | December 31, 2019
Derivative Instrument (1) |  | Designation |  | Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
(In Thousands) |  |  |  |  |  |  |  |  |  |
Swaps |  | Hedging |  | $ | — |  |  | $ | — |  |  | $ | 2,942,000 |  |  | $ | — |
Swaps |  | Non-Hedging |  | $ | — |  |  | $ | — |  |  | $ | 230,000 |  |  | $ | — |
(1) Represents Swaps executed bilaterally with a counterparty in the over-the-counter market but then novated to a central clearing house, whereby the central clearing house becomes the counterparty to both of the original counterparties. Swaps The following table presents the assets pledged as collateral against the Company’s Swap contracts at June 30, 2020 and December 31, 2019:
(In Thousands) |  | June 30, 2020 |  | December 31, 2019
Agency MBS, at fair value |  | $ | — |  |  | $ | 2,241 |
Restricted cash |  | — |  |  | 16,777 |
Total assets pledged against Swaps |  | $ | — |  |  | $ | 19,018 |
Swaps designated as hedges, or a portion thereof, could become ineffective in the future if the associated financing transactions that such derivatives hedge fail to occur. The following table presents information about the Company’s Swaps at June 30, 2020 and December 31, 2019:
|  |  | June 30, 2020 |  | December 31, 2019
| Notional Amount |  | Weighted Average Fixed-Pay Interest Rate |  | Weighted Average Variable Interest Rate (2) | Notional Amount |  | Weighted Average Fixed-Pay Interest Rate |  | Weighted Average Variable Interest Rate (2)
| Maturity (1)
| (Dollars in Thousands) |  |  |  |  |  |  |  |
| Over 3 months to 6 months |  | $ | — |  |  | — | % |  | — | % |  | $ | 200,000 |  |  | 2.05 | % |  | 1.70 | %
| Over 6 months to 12 months |  | — |  |  | — |  |  | — |  |  | 1,430,000 |  |  | 2.30 |  |  | 1.77 |
| Over 12 months to 24 months |  | — |  |  | — |  |  | — |  |  | 1,300,000 |  |  | 2.11 |  |  | 1.86 |
| Over 24 months to 36 months |  | — |  |  | — |  |  | — |  |  | 20,000 |  |  | 1.38 |  |  | 1.90 |
| Over 36 months to 48 months |  | — |  |  | — |  |  | — |  |  | 222,000 |  |  | 2.88 |  |  | 1.84 |
| Total Swaps |  | $ | — |  |  | — | % |  | — | % |  | $ | 3,172,000 |  |  | 2.24 | % |  | 1.81 | %
(1) Each maturity category reflects contractual amortization and/or maturity of notional amounts. (2) Reflects the benchmark variable rate due from the counterparty at the date presented, which rate adjusts monthly or quarterly based on one-month or three-month LIBOR, respectively. The following table presents the net impact of the Company’s derivative hedging instruments on its net interest expense and the weighted average interest rate paid and received for such Swaps for the three and six months ended June 30, 2020 and 2019:
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
(Dollars in Thousands) |  | 2020 |  | 2019 |  | 2020 |  | 2019
Interest (expense)/income attributable to Swaps |  | $ | — |  |  | $ | 692 |  |  | $ | (3,359 | ) |  | $ | 1,883 |
Weighted average Swap rate paid |  | — | % |  | 2.35 | % |  | 2.06 | % |  | 2.33 | %
Weighted average Swap rate received |  | — | % |  | 2.46 | % |  | 1.63 | % |  | 2.48 | %
During the six months ended June 30, 2020, the Company recorded net losses on Swaps not designated in hedging relationships of approximately $4.3 million, which included $9.4 million of losses realized on the unwind of certain Swaps. During the three and six months ended June 30, 2019, the Company recorded net losses on Swaps not designated in hedging relationships of $7.4 million and $16.3 million, respectively, which included $6.3 million and $14.1 million of losses realized on the unwind of certain Swaps. These amounts are included in Other income, net on the Company’s consolidated statements of operations. Impact of Derivative Hedging Instruments on AOCI The following table presents the impact of the Company’s derivative hedging instruments on its AOCI for the three and six months ended June 30, 2020 and 2019:
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
(In Thousands) |  | 2020 |  | 2019 |  | 2020 |  | 2019
AOCI from derivative hedging instruments: |  |  |  |  |  |  |  |
Balance at beginning of period |  | $ | (71,208 | ) |  | $ | (7,665 | ) |  | $ | (22,675 | ) |  | $ | 3,121 |
Net loss on Swaps |  | — |  |  | (19,706 | ) |  | (50,126 | ) |  | (30,151 | )
Reclassification adjustment for losses/gains related to hedging instruments included in net income |  | 64,032 |  |  | (743 | ) |  | 65,625 |  |  | (1,084 | )
Balance at end of period |  | $ | (7,176 | ) |  | $ | (28,114 | ) |  | $ | (7,176 | ) |  | $ | (28,114 | )

X
- References No definition available. + Details
Name: | us-gaap_OtherAssetsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for other assets. This disclosure includes other current assets and other noncurrent assets. + References No definition available. + Details
Name: | us-gaap_OtherAssetsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration